Issue

Private funding poised to increase as nanomanufacturing gets real

09/01/2006

The money is a flowin’...that is, if you are a late-stage company working in semiconductors, computing, energy or bio. In my short time here at Small Times, I haven’t seen anything like it. Big dollars, big players and big dreams.

In past columns, I’ve questioned whether venture capital and nanotechnology were a good fit. The time to commercialization has been long and often painful. Companies trying to make products enabled by nanotechnologies, unlike a dot-com, can’t think of an idea, set up a website, and start pulling in customers within three weeks. Obviously a slight exaggeration, but just the intellectual property review exercise prior to launching a nano company can take months when dealing with complex and global patenting issues.

Most venture capitalists check out of the meeting when they mentally double the entrepreneur’s estimate of the five-year-to-market business plan. Thus, as Small Times has reported in the past, the growth in venture capital funding of nanotechnology-based companies hasn’t matched expectations.

That was true until the past six months: Now we have NeoPhotonics raising $64 million, Nanosphere $57 million, Nanosolar $75 million, and Infinera with $24 million and then another round for $51 million.

And those are just the $50 million-plus rounds. By contrast, the biggest round in our records in 2005 was Nanosys with a $40 million round.

So, with it looking like venture capital investment in the first two quarters of 2006 will exceed all of 2005, does that mean I was off in my assessment? While I am more than ready to admit that I wasn’t prepared for these large rounds, I don’t think my observations that nanotechnology isn’t for the average (is there such a thing?) venture capitalist has changed.

First, the bulk of dollars are still going to late-stage and expansion rounds. Thus if you were lucky enough to meet nano investors like Charlie Harris or Josh Wolfe back in the early days, and were able to keep your company alive through multiple business strategy shifts, and survived long enough to get an experienced management team...then you are feeling pretty good right now. There is a lot of capital waiting to be deployed and that capital wants you!

But if you are a one or two-man show, need an A or B round, and don’t have a management team with a combined experience of 100 years, then I have some good and bad news for you. The bad news is that the venture capital numbers still aren’t looking good for early-stage nanotechnology funding, although that may be a lagging indicator. The good news is that I’ve recently met several entrepreneurs that are getting some attention from experienced emerging technology venture capitalists.

Second, the companies above have very defined vertical market segments with clear merger and acquisition opportunities in addition to the IPO options. These companies are using nanotechnologies, but they aren’t necessarily being seen as a “nano” company versus an “energy” or “medical device” company. Experience seems to be indicating that companies should be positioning themselves, if possible, as an industry vertical company first, and add the nano-enabled aspect second.

Last, like most venture capital investments, there is strategic investing in solutions aiming to fix large global problems. Konarka, Nanosolar, Innovalight and Miasole are all trying to be winners in the solar race. Same with solving the many semiconductor issues arising with the move down to the nanoscale.

Moving to production, the Nanosolar deal is interesting because most of the capital is going to manufacturing. For the past couple of years there has been a fear of investing dollars in manufacturing capacity. Justified no doubt with the MEMS fab bankruptcies and fire sales, but this may be an indicator that the tide is turning again.

Manufacturing is a critical step in the commercialization path, the convergence point between the macro and the micro/nano world, and a topic that is just starting to get attention. There’s a long way to go. Like the advice that you need to bring on your marketing person before creating a product, the same goes for making sure there is in-house production engineering expertise. It was interesting to hear a fellow speaker at a recent Society of Manufacturing Engineers symposium on nanomanufacturing talk about standards and quality control issues related to single-walled carbon nanotubes. What is being promised isn’t what is being delivered. I will venture that this is going to be a problem for awhile, especially as new nanoparticles are being developed and produced globally.

Focusing on the issues that most impact our micro and nanotechnology companies is what we do at Small Times. Many of you may have noticed in the last issue that our tag changed to “Micro and Nanotech Manufacturing, Tools and Materials.” As the technologies mature and commercialization starts to hit full swing, we are the publication that will be working with you to make it happen.

Patti Glaza is vice president and publisher at Small Times. She can be reached at pattiglaza@smalltimes.com.